Cyber risk and the M&A boom

Experts continue to tout cyber insurance as one of the biggest growth opportunities in the industry today. A June report from A.M. Best, for example, predicts that cyber premiums in the U.S. will grow from US$1.3 billion in 2016 to over US$20 billion by 2020. But some brokers will tell you the product is still a hard sell, and many customers still have doubts about what it will do for them.

One way brokers can start the cyber discussion is to ask if their customer is making any acquisitions or putting their company up for sale. Cybersecurity has moved from “afterthought” to “an integral part of the M&A process for any deal,” says a recent blog post from Cooley LLP. Undisclosed or undetected problems with network security, especially those within a company being acquired, have the potential to substantially reduce the value of a deal, or even scuttle it entirely. Cyber insurance may better insulate both buyers and sellers from the costs of dealing with a previously undetected breach during the due diligence phase of an acquisition.

Brokers with customers in the energy and resources sector should definitely discuss this issue at their next client meetings. Why? A relatively weak Canadian dollar continues to make energy companies attractive targets for foreign investors.

52%

Percentage of surveyed directors and officers that said a high-profile data breach at an acquisition target would “significantly lower the valuation” of the deal. A full 22% said they would not consider buying a company that had recently suffered a high-profile breach.